When you go into a store and swipe your card to pay for the purchase, the last thing you want is for the transaction to be declined. Not only is it embarrassing, but you run the risk of your bank charging you fees. Banks and other financial institutions use a number of terms to denote various transactions and fees. One term you should familiarize yourself with is the POS decline fee.
What Is a Point of Sale System?
A POS, or point of sale, system is the hardware and software merchants use to process credit and debit card transactions. This is generally the terminal, near the cash register, where you swipe your card to complete and pay for the transaction. When you make a point of sale purchase, the money is deducted from your account, if you have funds available. However, if you do not have the funds available and don't have a backup source designated, the charge will be declined. Depending on your bank, and the terms of your account, you could be charged a POS decline fee, even if the transaction is not paid.
The Opt-In Rule
In 2010, federal regulation was enacted that prohibits banks and financial institutions from paying transactions for which the consumer does not have enough funds to cover, unless he opts-in to this service. Banks used to be able to charge an overdraft fee for declined POS transactions – that bank customers did not necessarily sign up for – which could land the account holder in a world of returned item fees and penalties. Now, if you do not specifically opt-in for this overdraft protection, banks will simply decline the POS charge whenever you do not have sufficient funds available, rather than automatically paying it, then levying a fee. However, if you decide not to opt-in for the protection, and a bank processes the transaction anyway, it cannot charge you the overdraft fee.
Backup Funding Sources
One way to protect yourself from costly overdraft fees or embarrassing POS transaction declines is by signing up for overdraft protection. Overdraft protection is when you designate a backup funding source on a particular account. For instance, your savings account can be a backup funding source for your checking account. This way, when you do not have enough funds in your checking account to cover a POS transaction, the money will be automatically pulled from your savings account. Some financial institutions will allow you to add more than one backup funding source, such as a credit card, to help protect you against overdraft fees. Because you set this up before your account is overdrawn, banks typically do not charge a fee to tap your backup funding source to complete a transaction, although, depending on your bank, you could be assessed a fee for using this option. But, if you don’t have this safety net in place, you could find your card being declined and possibly facing fees.
A recurring payment is one you set up with a merchant to have a monthly amount withdrawn from your account. An automatic payment can be set up for paying utility bills, gym memberships or anything else that you’d like to be deducted from your account regularly without you needing to initiate payment beyond the initial set up. Recurring payments are handled differently from a regular POS transaction. For example, Bank of America does not charge an overdraft or POS decline fee if there is not enough money in your account to cover a non-recurring debit transaction. But, it may levy a NSF, or Non-Sufficient Funds, fee of $35 on certain recurring transactions that use your account number, such as automatic billing, electronic payments or recurring electronic check payment. If the transaction is paid, and you do not have enough funds to cover it, you will be charged an overdraft item fee.